A collection of often sceptical, always candid observations and insights on the US economy and large-cap equity markets. Readers have observed my style and perspective to be that "the emperor has no clothes," and that is reasonably accurate.
Postings reflect my philosophies and perspectives on economics, business and politics.

Monday, April 30, 2007

More on Speaking Truth To Power

Back in the first month or so of this blog, in the fall of 2005, I wrote this post predicting severe, near-bankruptcy conditions for at least one of the Big Three Detroit auto manufacturers.

I now wonder if GM, even in its last acts as a sustainably profitable enterprise, wields enough financial leverage to silence any significant, honest appraisal of its situation.Do analysts worry that they will be shut out of conference calls if they point to GM’s revenue problems as insoluble? Do the bankers worry that they won’t get invited to participate in any subsequent last-ditch financings? Do the various media outlets worry that they will have seen the last GM ads in/on their medium, should they report candidly about the company’s prospects? Perhaps fund managers are concerned that candid remarks will lose them possible business with GM's pension funds or treasury functions.It’s now beginning to seem to me that all these parties, “stakeholders,” if you will, literally have more to gain from a fatally bleeding GM than they do from a merged/acquired/failed GM.

Last fall, when I bought a new laptop for my daughters, I wrote this post discussing why I didn't buy one from Dell, and why I thought the company had seriously erred in keeping its business model current. That post garnered a reply from a Dell staffer admonishing me for my comments, and assuring me that the direct sales model was alive, well, and prospering!

It's taken until this past week for Michael Dell himself to announce that maybe the direct sales model needs to be revisited at Dell. In the interim, there wasn't a whole lot of criticism of the firm, other than it changed CEOs. Perhaps the word "gingerly" describes the business media's attitude toward the struggling computer maker during this time of poor performance.

I've written about GE's need to be split apart, back in August of 2006, but it took until last week for an analyst to have the courage to suggest the same remedy. Even then, he's been doubted by most other pundits, or just ignored.

As I discussed this with my partner yesterday, we came to the conclusion that this is simply the result of the structure of business media.

For instance, my partner noted that, because politicians crave coverage and publicity, commentators, analysts, et.al., think nothing of savagely attacking them. In fact, they are paid to do that. The more detailed their criticisms of politicians and elected officials, the better. Their targets don't have enough money to really affect the media covering them, and, besides, the politicians have to have that coverage.

Not so in the business world. Because most business media depend upon advertising revenues, large corporations wield an important, potent weapon. By withholding advertising, as well as refusing to grant interviews or access to events for members of an offending publication, broadcast or cable network, large corporations seem to be relatively immune to honest, factual, blunt criticism.As my recently-added link to my prior predictions illustrates, there are several instances in which the signs of trouble were obvious for some time (GM, GE, Dell), yet the business media refused to report on the issues.In GE's case, it's actually laughable, because the company owns CNBC. So when David Faber tried to soft pedal the Citi analyst's report on the air last week, he looked ridiculous. While noting GE's flat performance under Immelt, he never the less alleged that 'some people would say he (Immelt) has actually performed better than his predecessor.' Ha! Who, besides Immelt and his board, believes that?It seems to me that, anymore, the only really trustworthy business coverage is that which does not require corporate target spending (on, e.g., advertising, consulting, brokerage, underwriting, etc.) to exist. Like....well....blogs!However, if you are waiting for Wall Street analysts, media columnists, or business television network reporters to break major stories, before the fact, about serious problems at many large companies, don't hold your breath.

About Me

A well-educated veteran of US corporate strategy positions & hedge fund management, as well as research, product development and project work in consulting, strategy and equity management. Academic background in marketing, strategy, statistics and economics.
Currently own Performance Research Associates, LLC, through which I am involved in proprietary equity and equity options investment management.